CONFIDENTIAL
12.
However, if the benefits of further relaxing our policy towards Taiwan, if any, are hard to assess, the dangers to our interests in China of getting it wrong are very real. Firstly there are the risks of damaging our ability to influence Chinese thinking on the future of Hong Kong. Our relations with China over the future of Hong Kong are already strained and Chinese suspicions of our intentions and motives heightened. These suspicions include the role Taiwan has played in stirring up anti-mainland agitation in Hong Kong and in influencing both HKG's and HMG's handling of PRC asylum-seekers. Against this back- ground the Chinese will be even more sensitive than vis-a- vis other Western countries about any move on our part which they could perceive as moving towards official contact with Taiwan. On the basis of recent experience, we can expect their response to any such move to be exaggerated and without regard to the true interests of Hong Kong as we perceive them. Secondly, we must bear in mind the risk to the UK's considerable commercial interests in China. Unlike our commercial interests in Taiwan, these are dependent to a large degree on governmental involvement, whether through concessional financing or lobbying by Ministers and this Embassy. The Chinese would have no compunction about retaliation in this area in response to "misdeeds" on our part on the Taiwan front. Finally, in the long term China will always be more important to us in political terms, not only because of Hong Kong, but also because of its strategic role as a nuclear power and a permanent member of the Security Council. It would be foolish to sacrifice our long term interests in this area for possible short term gains in a territory that can only ever be of commercial importance (and whose political future is dependent as a matter of fact on its own evolving relationship with Peking).
13.
In conclusion I would argue that our policy on Taiwan should remain to do what we can to promote our commercial interests in Taiwan while not putting at risk our wider, and deeper, interests in China. However, in the aftermath of 4 June, and against the background of the increased Chinese sensitivities described above, we shall need to pay more careful attention to the latter part of this equation. Over the last two years we have implemented a series of measures to relax our policy on Taiwan (eg the Visa Handling Unit and Anglo-Taiwan Education Committee), none of which in itself was objectionable, but the cumulation of which have already made the Chinese wary of our intentions. These measures ought to mean that our businessmen in Taiwan now have at least the same degree of support as our European partners. We should be extremely cautious about yielding to pressure to take further measures. It is important for us always to remember that opposition to official contacts with Taiwan is not simply a question of "face" for the Chinese. They regard countries who establish such contacts as deliberately seeking to undermine their own strategy for peaceful reunification, as described above, and they will respond accordingly.
CONFIDENTIAL
/14.